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November 2004:
HIGHLIGHTS OF A GAO FORUM:
The Federal Government's Role In Improving Financial Literacy:
GAO-05-93SP:
GAO Highlights:
Highlights of GAO-05-93SP.
Why GAO Convened this Forum:
Research has shown that many Americans lack the knowledge of basic
personal economics they need to make informed financial judgments and
manage their money effectively. Yet financial literacy is increasingly
important in a world where consumers must choose from an array of
complicated financial products and services and employees must take on
more responsibility for their retirement savings. Title V of the Fair
and Accurate Credit Transactions Act of 2003, known as the Financial
Literacy and Education Improvement Act, created the Financial Literacy
and Education Commission, comprised of 20 federal agencies, and charged
it with coordinating federal efforts and developing a national strategy
to promote financial literacy.
The act also mandated that GAO report on recommendations for improving
financial literacy among consumers. To help in developing our work, on
July 28, 2004, GAO hosted a forum on the role of the federal government
in improving financial literacy. Forum participants included experts in
financial literacy and education from federal and state agencies, the
financial industry, nonprofit organizations, and academic institutions.
Participants discussed the topics federal efforts should cover,
populations that should be targeted, methods of delivering information,
and the role of program evaluation.
What Participants Said:
Forum participants offered a number of suggestions regarding the
federal government’s role in improving Americans’ financial literacy:
* The federal government should serve as a leader. The federal
government should use its influence, authority, and “bully pulpit” to
make financial literacy a national priority. However, given that a wide
array of state, local, nonprofit and private organizations already
provide financial education, the federal government’s role should
largely be supportive, filling the gaps left by others and serving as
an unbiased source of information.
* Increased public-private partnerships and interagency coordination
are needed. Partnerships between federal agencies and other
organizations are the best way to use scarce resources efficiently,
facilitate the sharing of best practices, and help federal agencies
reach targeted populations at the community level. In addition, federal
financial literacy efforts should be integrated across agencies and
consolidated to focus on those agencies with the most expertise and
best track records in this area.
* Consumers need financial information on a broad range of topics.
Among the most important topics for financial education are basic
skills—such as budgeting, planning, and managing money—as well as
information on saving for retirement, investing, and managing credit.
Financial education should be delivered at “teachable moments” when the
information is applicable to a person’s life. Participants’ views
varied on the need to incorporate into financial education broader
issues such as the implications to individuals of the budget deficit
and long-term fiscal challenges facing the nation.
* A variety of methods are needed to deliver financial education
effectively. Participants said that the federal government should
sponsor a major media campaign with a clear and simple message and find
ways to ensure that existing financial education materials are more
widely disseminated. Participants also emphasized the importance of
personal interaction—such as one-on-one counseling—and of including
financial education in school curriculums. To this end, they said the
U.S. Department of Education needs to deepen its commitment to
financial education.
* Financial literacy programs need to be evaluated. Program evaluation
ideally should assess outcomes, such as the impact on participants’
personal savings. The federal government can facilitate others’
evaluation efforts by developing or supporting standardized evaluation
tools, serving as a national clearinghouse for evaluation efforts, and
disseminating best practices.
www.gao.gov/cgi-bin/getrpt?GAO-05-93SP.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Thomas J. McCool at (202)
512-8678 or mccoolt@gao.gov.
[End of section]
Contents:
Letter:
Financial Literacy: Highlights of Forum Discussion:
The Federal Government Should Serve as a Leader in Efforts to Improve
Financial Literacy:
Increased Public-Private Partnerships and Interagency Coordination Are
Needed:
Consumers Require Financial Information on a Broad Range of Topics:
While All Consumers Need Financial Education, Certain Populations Need
to Be Targeted:
A Variety of Methods Are Needed to Deliver Financial Education
Effectively:
The Federal Government Should Conduct and Facilitate Program
Evaluation:
Appendixes:
Appendix I: Forum Participants:
Appendix II: Related GAO Products:
Letter November 15, 2004:
The Honorable Richard C. Shelby:
Chairman:
The Honorable Paul S. Sarbanes:
Ranking Minority Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The Honorable Michael G. Oxley:
Chairman:
The Honorable Barney Frank:
Ranking Minority Member:
Committee on Financial Services:
House of Representatives:
Subject: Highlights of a GAO Forum: The Federal Government's Role in
Improving Financial Literacy:
Faced with growing evidence that large numbers of Americans lack
knowledge about basic personal economics and financial planning,
policymakers and others have begun to focus increasing attention on the
state of financial literacy in the United States. Financial literacy
can be defined as the ability to make informed judgments and to take
effective actions regarding the current and future use and management
of money. It includes the ability to understand financial choices, plan
for the future, spend wisely, and manage the challenges that come with
life events such as a job loss and saving for retirement or a child's
education. A lack of financial literacy affects consumers' economic
well-being and security in a variety of ways. Poor money management and
financial decision making can lower a family's standard of living and
interfere with crucial long-term goals, such as buying a home and
financing retirement.
Financial literacy has broader public policy implications as well. The
financial markets work best when consumers understand how financial
services providers and products work and know how to choose among them.
Further, informed consumers can help discipline markets by choosing
appropriate financial investments, products, and services. In addition,
our income tax system requires citizens to have an adequate
understanding of the tax system and financial matters in general.
Educated consumers are also essential to well-functioning retirement
systems--consumers must understand, for example, that Social Security
is not intended to be an individual's only source of retirement income.
Finally, financial literacy is important in ensuring that Americans who
receive public assistance successfully transition to greater self-
sufficiency.
However, there is evidence that financial literacy in America needs to
be improved. For example, a 2003 national survey by AARP of consumers
aged 45 and older found that they often lacked knowledge of basic
financial and investment terms. Only about half of respondents, for
instance, reported knowing that diversification of investments reduces
risk. Similarly, in a recent survey of 4,000 high school seniors
conducted by the Jump$tart Coalition for Personal Financial Literacy,
students correctly answered an average of only 52 percent of questions
on basic personal finances. Yet a number of trends have emerged in
recent years that underscore the importance of financial literacy in
everyday life.
* Consumers are faced with a wider and increasingly complicated array
of options for managing their personal finances and selecting
investments and credit products.
* Technological advances have increased the capacity for targeted
marketing to consumers, potentially increasing some consumers'
vulnerability to predatory lenders and other unscrupulous providers of
financial services.
* Consumers are increasingly responsible for their own retirement
savings, with traditional defined-benefit retirement plans becoming
increasingly rare.
* The personal saving rate has fallen dramatically, declining from
nearly 7 percent of gross domestic product in the 1970s and 1980s to
around 2 percent in recent years.
* Household debt as a percentage of income hovers at record high
levels. In addition, bankruptcy rates have more than quadrupled in the
past 20 years.
Finally, I believe that a clear understanding of the country's overall
financial condition and future fiscal outlook is an indispensable part
of true financial literacy. The financial futures of the American
people are shaped not only by their own personal planning and
individual investments but also by the fiscal choices made in
Washington. The official U.S. gross debt now stands at more than $7
trillion, and that does not include tens of trillions in unfunded
Social Security and Medicare benefits, veterans' health care, and a
range of other commitments and contingencies. Due to current
demographic trends, rising health care costs, and other factors, we
face the possibility of decades of mounting deficits, which left
unchecked will threaten our economic and national security, while also
adversely affecting the quality of life and opportunities available to
future generations. Americans must be aware of these developments in
planning for their own financial futures, since, for example, we can no
longer assume that current federal entitlement programs will continue
indefinitely in their present form.
Currently, about 20 different federal agencies operate about 30
different programs or initiatives related to financial literacy. In
addition, federal agencies often partner with the multitude of
nonprofit, industry, state, and local entities that sponsor, fund, or
operate their own financial literacy initiatives. These efforts cover a
wide variety of topics, target a range of audiences, and include
classroom curricula, print materials, Web sites, broadcast media, and
individual counseling. In Title V of the Fair and Accurate Credit
Transactions Act of 2003, known as the Financial Literacy and Education
Improvement Act,[Footnote 1] Congress created the Financial Literacy
and Education Commission (the Commission). The Commission is made up of
20 federal agencies and is charged with developing a national strategy
to promote financial literacy and education for all Americans. The
Commission is also charged with coordinating financial education
efforts among federal agencies and between the federal government and
state and local governments, nonprofit organizations, and private
enterprises. The Commission is to identify areas of overlap and
duplication among federal financial literacy activities.
The act also mandated that GAO report on recommendations for improving
financial literacy among consumers.[Footnote 2] On July 28, 2004, GAO
hosted a forum to develop recommendations on the role of the federal
government in improving financial literacy among consumers. The forum's
participants included a select group of individuals with expertise in
financial literacy and education. They included representatives of
federal and state agencies, the financial industry, nonprofit
organizations, and academic institutions. Participants were asked to
consider the appropriate role of the federal government in financial
literacy, particularly in relation to the role of state and local
government agencies, nonprofit organizations, and financial services
institutions. Participants discussed how the federal government could
coordinate its efforts and partner with others more effectively. They
also discussed the appropriate topics, target populations, and methods
of delivery for federal financial education efforts and the role of
program evaluation.
Following is a summary of the discussion among the forum participants.
Appendix I provides a list of the participants. Appendix II lists GAO
products on issues related to financial literacy. This report will be
posted on our Web site at [Hyperlink, http://www.gao.gov]. For
additional information on our work related to financial literacy,
please contact Thomas J. McCool, Managing Director, Financial Markets
and Community Investment, on (202) 512-8678 or at
[Hyperlink, mccoolt@gao.gov]. Key contributors to this report include
Allison Abrams, Jason Bromberg, Davi M. D'Agostino, Debra Johnson,
Yvonne Jones, Mona Nichols, and Wendy Wierzbicki.
I wish to thank all of the participants of this forum for taking the
time to share their knowledge and insights on financial education and
on the role of the federal government in improving America's financial
literacy. I look forward to working with them and others on this
important issue in the future.
Signed by:
David M. Walker:
Comptroller General of the United States:
[End of section]
Financial Literacy: Highlights of Forum Discussion:
On July 28, 2004, GAO hosted a forum to develop recommendations on the
role of the federal government in improving financial literacy among
consumers. Participants discussed the federal government's overall role
in financial literacy as well as issues of coordination and
partnership, topics for financial education, target populations,
methods of delivery, and the role of program evaluation. The following
summarizes the collective discussion of the forum participants as well
as subsequent comments received from participants based on a draft of
this report.
The Federal Government Should Serve as a Leader in Efforts to Improve
Financial Literacy:
Forum participants discussed the appropriate role for the federal
government in improving financial literacy. They emphasized that the
federal government should use its influence and authority to make
financial literacy a national priority. In large part, its role should
be to fill gaps left in the financial education efforts of the
nonprofit and private sectors.
* The federal government should serve as a leader. Participants
emphasized that for a federal financial literacy effort to be
successful, the driving force must come from the highest levels, such
as the President or a cabinet secretary. Efforts to make financial
literacy a prominent national issue can not come solely from the
grassroots level but require exercising the "bully pulpit" of federal
leadership. Further, this leadership must have a strong enough passion
about financial literacy to keep the nation focused on the issue. One
participant said that an important figure or agency must take the issue
of financial literacy as a "life purpose," noting that the success or
failure of federal efforts could depend on the effectiveness of the
Department of the Treasury's Office of Financial Education. Some
participants noted that making financial literacy a sustained priority
would be difficult, particularly given the federal government's current
focus on terrorism and foreign issues. Participants were complimentary
of Congress's creation of the Financial Literacy and Education
Commission. However, one participant noted that given the large number
of issues that Congress takes up, it can be a challenge to keep its
attention focused on any one issue for an extended period of time.
* The federal government's role in financial education should be to
fill the gaps left by others and serve as an unbiased source of
information. Participants said that the federal government exists to
serve its citizens by addressing a broad set of needs. With regard to
improving financial literacy, the government should direct its efforts
to the gaps in coverage--topics and populations that are not being
addressed adequately by the financial education initiatives of the
nonprofit and private sectors. Some participants noted that while the
corporate world has some very good financial education initiatives, the
private sector is ultimately driven by the bottom line and may not
always be motivated to devote resources to broad-based, noncommercial
consumer financial education. For this reason, it is important for the
government to serve as an objective and unbiased source of information,
particularly in terms of helping consumers make wise decisions about
the selection of financial products and services. Many participants
also said that consumer protection is a natural role for the
government, especially in those cases where the private sector does not
have a vested financial interest of its own at stake. One participant
noted that the federal government should ensure that the mandated
disclosures on many financial products, such as mutual fund
prospectuses and mortgage forms, are useful and readable--that is, that
they actually serve to help inform and protect consumers rather than
simply protect companies against legal liability.
Increased Public-Private Partnerships and Interagency Coordination Are
Needed:
Federal agencies often partner with nonprofit and industry
organizations that sponsor, fund, or operate financial literacy
initiatives. Participants said that such partnerships are essential and
suggested measures the federal government can take to facilitate them.
Participants also recommended that the federal government improve
coordination of the many financial literacy programs that exist among
multiple federal agencies. They suggested that the federal effort be
streamlined to avoid duplication and concentrate resources on those
federal agencies best equipped to provide financial education.
* Public-private partnership is key. Participants said that there are
many benefits to the development of partnerships involving the federal
government, the states, industry groups, and nonprofit organizations in
efforts to improve financial literacy. They noted that partnering:
* makes the most efficient use of scarce resources,
* facilitates the sharing of best practices among different
organizations,
* helps the federal government reach targeted populations via
community-based organizations at the grassroots level, and:
* facilitates coordination of the increasing number of financial
literacy programs that exist nationwide.
Participants felt that in general the federal government should seek to
build on rather than duplicate the financial education efforts that
have been undertaken at the community level. Finally, organizations
should understand their comparative advantage. For example, one
participant noted that while the Federal Reserve System is good at
creating financial education materials, community groups are good at
distributing them. With effective partnerships, each organization has a
role and can focus on what it does best.
* The federal government can take measures to increase public-private
partnerships. Two participants said that the federal government should
provide stronger incentives to corporate America to support financial
literacy programs, because the private sector will not necessarily
provide such programs otherwise. The Community Reinvestment Act is one
example of the federal government's efforts to encourage financial
institutions to support financial literacy in communities they
serve.[Footnote 3] One participant also cited the Department of
Defense's Financial Readiness Campaign as an example of effective
partnering, noting that the campaign brought together 26 agencies and
organizations from the private and public sectors to help improve
financial literacy among members of the military. Another participant
cited Jump$tart as an effective model of partnership because it brought
together a variety of players.[Footnote 4] One suggested that the
federal government consider more collaboration with financial planners,
who have direct contact with consumers and thus are well positioned to
provide financial information. Because financial planners and other
private parties often sell financial services and products, however,
public agencies need to establish ground rules for such collaborations
that address any potential conflicts of interest. One participant also
said the federal government should facilitate more intergovernmental
partnering. States and localities tend to look to the federal
government for leadership, and federal agencies can do more to bring
together state treasurers, state securities commissioners, governors,
and others in support of efforts to improve financial literacy.
* Federal interagency and intra-agency efforts should be better
coordinated. Participants generally believed that the federal
government is doing good work providing financial education and
promoting financial literacy, but some were concerned about the
possibility of duplication among programs and the number of federal
agencies involved in these efforts. It was felt that the federal
financial literacy effort should be streamlined so that agencies with
the most expertise and best track records in this area would be doing
the work. One participant stated some federal programs were being
managed by individuals with insufficient background in financial
education issues. Another participant noted that the Department of the
Treasury's Office of Financial Education, created in 2002, represented
a good first step because it served as a central point of contact for
federal financial literacy efforts. Participants also believed that the
federal Financial Literacy and Education Commission would play a
beneficial role in coordinating federal activities. The Commission,
participants said, would raise the profile of the financial literacy
issue among agency leadership, coordinate the work of multiple federal
agencies, and create an overall federal strategy for improving
financial literacy. One participant also noted that coordination of
financial literacy efforts within federal agencies needed to be
improved. As an example, the participant cited an incident involving
staff who were working on a financial literacy initiative, unaware that
a similar effort was under way elsewhere in the agency.
Consumers Require Financial Information on a Broad Range of Topics:
What topics should federal efforts to promote financial literacy
emphasize? Forum participants said that basic money management skills
are most essential and that individuals should be educated on meeting
future financial obligations. Investment and retirement savings were
also commonly cited as important topics. But participants views varied
on the need to incorporate into financial education broader issues such
as the budget deficit and long-term fiscal challenges facing the
nation.
* Consumers need some basic knowledge if they are to make responsible
and informed financial decisions. Participants agreed that federal
financial literacy efforts should first and foremost aim to give
consumers the basic financial knowledge and skills needed to make
responsible financial decisions. Budgeting, saving, money management,
and basic financial planning were frequently cited as the most
essential topics for a financial education strategy. Participants also
thought that consumers would benefit from more education on credit,
including the cost of credit and how to use and manage credit
responsibly. Two participants discussed the importance of encouraging
consumers to do more research into products and services before making
a purchase, noting that many consumers make imprudent decisions because
they fail to comparison shop. Several participants also cited the
importance of providing education on consumer protection issues,
especially on avoiding fraud.
* The federal government should prepare consumers for future financial
challenges. Participants said that the federal government should
educate individuals on meeting future financial obligations such as
paying for health care and saving for retirement. For example,
participants said that consumers need more information on planning for
health care expenses in an era of rising medical costs and increasing
longevity. One participant commented that the best way to prepare
consumers for a financially sound future is to help them find and
retain employment. As part of this effort, youth and new immigrants
should be educated on the nation's entrepreneurial business culture so
that they are better prepared to enter the workforce.
* Investing and saving for retirement should be an important focus of
financial education. In an era when employees are increasingly expected
to take responsibility for funding their retirements, several
participants stressed the importance of educating consumers on
investing wisely and saving for retirement. Participants said that
consumers need instruction on basic investment principles, such as the
comparative risks of different types of investments and the need to
diversify investments to reduce risk. In addition, consumers need more
information on saving to accumulate enough retirement funds to last the
duration of their lives. One participant encouraged the federal
government to reach workers who are on the cusp of retirement with
information on making the transition from saving for retirement to
living off of investment income and Social Security. Several
participants recommended that the federal government use the annual
statements that the Social Security Administration sends to most
Americans as a means of delivering some of this financial education.
* Views differed on the need to educate consumers about the budget
deficit and long-term fiscal challenges facing the nation. Participants
were asked whether the federal government should include, as part of
its financial literacy effort, information on issues such as the
federal budget deficit and the implications of the nation's long-term
fiscal imbalance. Some participants felt the topic was too complex for
the average consumer to understand or to factor into the financial
decision-making process. They encouraged the federal government to keep
the messages related to financial literacy simple in order to reach as
many people as possible. Others noted that most consumers do not care
about issues like the budget deficit because they do not believe that
such issues have a direct impact on their lives. Moreover, consumers
may suspect that any federal campaign related to the budget deficit is
politically motivated, potentially undermining the campaign's
credibility. But some participants supported including these
macroeconomic issues in financial education efforts. One noted that
whether or not consumers care about national fiscal matters, they
should care. The federal government has a responsibility to inform
consumers that entitlement benefits cannot realistically be sustained
at current levels for the long term, and consumers should plan for
their futures accordingly.
While All Consumers Need Financial Education, Certain Populations Need
to Be Targeted:
Participants said that all consumers need to be financially literate,
but their specific needs for financial education change over the course
of their lives. In addition, many participants recommended that federal
financial literacy efforts target certain populations.
* People's information needs vary over the course of their lives.
Participants said that financial education is needed among all age
groups and income levels but cautioned that consumers need different
kinds of financial information at different phases of their lives. For
instance, one participant commented that young people need to learn how
to be prepared to enter the workforce, while working adults need
information on managing credit and investing for retirement. Retirees,
however, may need information on managing their retirement funds.
Participants said that financial education should come at the right
time--that is, at the "teachable moments" that occur when the
information is applicable to events in a person's life.
* Many participants advocated targeting certain populations. While
participants recommended that the federal government conduct a broad
financial education effort, many participants said special efforts
should be made to reach certain groups. Among these were:
* low-and moderate-income individuals and families, who typically have
less experience with complicated financial transactions such as buying
a home and may be more susceptible to deception or fraud;
* low-income women, who usually do not have an employer-provided
retirement plan and often are entitled to relatively little Social
Security income;
* immigrant populations, who may require information on operating
within our nation's economic system, which may be unfamiliar to them;
and:
* young people, who need to learn how to make responsible financial
decisions as adults.
A Variety of Methods Are Needed to Deliver Financial Education
Effectively:
Participants were asked how federal financial literacy efforts could
best reach consumers. They said the government should initiate a major
media campaign with a clear message that underscores the importance of
financial literacy. They also said that existing financial literacy
materials should be more widely distributed, but not at the expense of
interaction with individuals--a key element of successful financial
education. Many participants also said that the U.S. Department of
Education needs to make a greater commitment to financial literacy.
* The federal government should initiate a major media campaign on the
importance of financial literacy. Participants said such a campaign
should be directed at the general population and should include a
simple, clear, direct message--for example, "Financial Security for All
Americans"--that would motivate consumers. Television and the Internet
were cited as two potentially effective ways to deliver such a message.
Participants noted the success of certain federal public service
announcements, such as Department of Agriculture's Smokey Bear
campaign. One participant suggested a campaign encouraging consumers to
do a periodic "financial check-up." Another suggested that members of
the Financial Literacy and Education Commission promote a "message of
the month." For example, the Department of Labor might sponsor a
message on the importance of contributing to employer-sponsored
retirement plans. These messages could be delivered through channels
that regularly dispense financial literacy information, such as
financial planning professionals, community organizations, church
seminars, and radio talk shows. In contrast, however, one participant
believed that broad-based efforts to raise awareness are overly costly
and are far less effective than in-depth community-led education in
changing behavior.
* The federal government should do more to distribute existing
financial education materials. A participant noted that many federal,
nonprofit, and financial industry organizations create high-quality
financial education materials that reach relatively few people. These
materials need to be marketed more effectively, using a variety of
methods to ensure that they reach as wide an audience as possible. In
general, participants agreed that federal agencies need to provide
credible financial information that is easy to access. Two federal
initiatives could meet these criteria: the central financial literacy
Web site and telephone information hotline established by the Financial
Literacy and Education Commission.[Footnote 5] One participant said,
however, that more research is needed on where consumers obtain
financial information, while another said that agencies should work
with local newspapers and television stations to disseminate stories
showing how financial education has helped people and potentially
encouraging other consumers to tap into available resources.
* Delivery methods for financial information should vary according to
the target audience, but interaction with individuals is key. Although
participants favored using a variety of different delivery methods to
reach different audiences, they added that personal interaction is
often the most effective vehicle for conveying information in a way
that actually impacts behavior. One participant noted that the
Department of Defense incorporates person-to-person counseling in its
financial literacy initiative. Another said that the government should
encourage companies to make greater use of their benefits counselors to
provide employees with financial counseling. The federal government
could also develop a closer partnership with the Financial Planning
Association, perhaps to encourage financial planning professionals to
provide pro bono counseling services to individuals in need of
financial expertise.[Footnote 6] Certified public accountants were also
seen as a potentially effective means of reaching the general
population.
* Financial education should be part of school curriculums and
additional commitment by the Department of Education is needed.
Participants discussed the importance of including financial education
in school curriculums at all levels. They noted that many states do not
teach financial education, in part because of limited resources and
because the standardized exams used to assess students and schools do
not test for financial knowledge. Many participants believed the U.S.
Department of Education should make financial education more of a
priority. While states and localities control public schools, they
noted, the department could use its influence to encourage them to
incorporate financial education. A stronger commitment by the
department could perhaps include funding or other incentives to schools
and teachers to promote financial literacy.
The Federal Government Should Conduct and Facilitate Program
Evaluation:
While financial literacy programs have proliferated, research measuring
the effectiveness of the programs has not kept pace. Participants were
asked about the nature of the evaluation component that should be
included in financial literacy programs and the role the federal
government should take in facilitating effective evaluation efforts.
Evaluations should generally attempt to measure changes in behavior
rather than simply knowledge or skills, participants said. They also
cited ways the federal government could assist in evaluation efforts,
such as by serving as an information clearinghouse, setting some
standardized benchmarks, and helping nonprofits build an evaluation
infrastructure.
* Program evaluation is essential. Participants agreed that a strategy
was needed to learn what is and is not effective among federal
financial literacy programs. However, relatively little program
evaluation and cost-benefit analysis have been done to assess these
programs and determine their effectiveness. Participants said that
program evaluation ensured that scarce resources were being used
efficiently and were actually improving financial literacy. Moreover,
demonstrating that financial literacy programs have meaningful results
is important for building political and public support for these
programs. At the same time, two participants cautioned against
allocating too many scarce resources to program evaluation and putting
an undue burden on small programs with limited resources. In addition,
anecdotal evidence rather than specific outcome measures may sometimes
be an adequate indicator of success in the early stages of a new
program.
* Evaluations of financial literacy programs should try to assess
behavioral change, if feasible. A number of different measures can be
used to evaluate a financial literacy program, participants said. A
program can be assessed by measuring such things as changes in the
target audience's financial knowledge and skills or by changes in
actual behavior. Ideally, any evaluation of a financial literacy
program should measure the impact on behavior, such as changes in
program participants' personal savings, credit scores, or homeownership
rates. The Federal Deposit Insurance Corporation's Money Smart program
was cited as an example of an effort that has resulted in behavioral
change, as some 50,000 people have opened bank accounts after
completing its curricula. One participant noted that the Department of
Defense could serve as a particularly good laboratory for learning what
is effective in financial education, as it already has standardized
financial literacy programs and a "captive audience" that is easy to
track over time. In general, someone noted, behavioral change can be
measured on a micro level (the impact on individual program
participants) or on a macro level (the impact on society or the economy
as a whole). While participants said that evaluation efforts should
attempt to measure behavioral change, they also acknowledged that this
type of evaluation can be extremely difficult. It can require tracking
actions and decisions by a program's participants over a long period of
time--activities that may be unduly expensive, time consuming, or
infeasible. In addition, because many variables can affect consumer'
behavior and decision making, ascribing any long-term changes to a
particular program is difficult. One participant emphasized that we
must acknowledge programs with significant intangible benefits that
nonetheless do add real value.
* Build on existing models of evaluation. Participants indicated that
evaluation efforts should build upon, rather than duplicate, one
another. Some standardized means for measuring program impact should be
used to evaluate multiple programs. One participant noted that the
National Endowment for Financial Education was currently funding the
development of some standardized evaluation tools.[Footnote 7] Another
noted that the Department of the Treasury had developed a list of
elements that are common to successful financial education programs.
One participant pointed out that the Department of Agriculture, working
through the nationwide Cooperative Extension System to deliver the
Financial Security in Later Life program, had an evaluation component
built into it from the beginning and that other programs may want to
use this program as a model. Another participant suggested borrowing
from the Office of Management and Budget's work on cost-benefit
analysis and using it to evaluate financial literacy programs. Two
participants said that longitudinal studies (following consumers over
an extended period of time) were needed to prove that programs are
having an effect. Also needed are benchmarks--baseline standards for
measuring or comparing the effect of a financial literacy program. A
participant said that the federal government might want to establish
basic benchmarks and that Jump$tart's periodic survey of high school
students' financial literacy could be used as one of these benchmarks.
In addition, the federal government could use the vast amount of
economic data it collects to help benchmark and measure the
effectiveness of financial literacy efforts on a macro level.
* A primary goal for federal evaluation efforts should be to facilitate
the evaluation efforts of other players. Participants said the federal
government could play a constructive role by developing an evaluation
infrastructure that would help local organizations build their capacity
and evaluate their programs appropriately. For example, the federal
government could serve as a clearinghouse for evaluation results. At
the same time, at least one participant had reservations about
establishing federal standards for financial literacy programs, fearing
that a top-down approach might inadvertently serve to hamper efforts at
the community level. In fact, several participants said an assessment
should be built into the evaluation of any federal financial literacy
program to determine whether the federal government was indeed the best
entity to be conducting the program. Participants noted that federal
agencies should carefully consider whether they have sufficient
expertise to deliver financial education effectively or whether another
entity, such as a private or nonprofit organization, might be a more
appropriate choice.
[End of section]
Appendixes:
Appendix I: Forum Participants:
Facilitator:
David M. Walker:
Comptroller General of the United States:
U.S. Government Accountability Office:
Participants:
William L. Anthes:
President and CEO:
National Endowment for Financial Education:
Marcus Beauregard:
Financial Readiness Campaign Coordinator:
Irving Burton Associates for the U.S. Department of Defense:
Don M. Blandin:
President and CEO:
Investor Protection Trust:
Kelvin Boston:
President:
Boston Media, Inc.
Stephen Brobeck:
Executive Director:
Consumer Federation of America:
Sharon Burns:
Executive Director:
Association for Financial Counseling and Planning Education:
Denise Voigt Crawford:
Securities:
Commissioner State of Texas:
Dara Duguay:
Director, Office of Financial Education:
Citigroup:
Timothy J. Forde:
Vice President for Strategic Analysis:
Investment Company Institute:
Donna Gambrell:
Deputy Director for Compliance and Consumer Protection:
Federal Deposit Insurance Corporation:
Carl R. George:
Chief Executive Officer:
Clifton Gunderson LLP:
Sallyanne Harper:
Chief Administrative Officer and Chief Financial Officer:
U.S. Government Accountability Office:
Jeanne Hogarth:
Program Manager, Consumer Education and Research:
Board of Governors of the Federal Reserve System:
Dan Iannicola, Jr.
Deputy Assistant Secretary for Financial Education:
U.S. Department of the Treasury:
Elizabeth W. Jetton:
President:
Financial Planning Association:
Laura Levine:
Executive Director:
Jump$tart Coalition for Personal Financial Literacy:
Angela C. Lyons:
Assistant Professor of Economics:
University of Illinois:
Dan Mahoney:
Senior Vice President, Public Affairs and Publishing:
American Council of Life Insurers:
Thomas J. McCool:
Managing Director, Financial Markets and Community Investment:
U.S. Government Accountability Office:
Gary John Previts:
Professor of Accountancy:
Case Western Reserve University:
Jane Schuchardt:
National Program Leader, Cooperative State Research, Education, and
Extension Service:
U.S. Department of Agriculture:
Colleen Tressler:
Senior Project Manager:
Federal Trade Commission:
Susan Ferris Wyderko:
Director of Investor Education and Assistance:
U.S. Securities and Exchange Commission:
[End of section]
Appendix II: Related GAO Products:
Consumer Protection: Federal and State Agencies Face Challenges in
Combating Predatory Lending.
[Hyperlink, http://www.gao.gov/cgi-bin/ getrpt?GAO-04-280]
Washington, D.C.: January 30, 2004.
Describes government, industry, and nonprofit efforts to provide
consumer education on predatory home mortgage lending. Finds that
consumer education efforts in general are useful, but that their
ability to deter predatory lending may be limited by several factors,
including the complexity of mortgage transactions and the difficulty
of reaching the target audience.
Military Personnel: DOD Needs More Data to Address Financial and Health
Care Issues Affecting Reservists.
[Hyperlink, http://www.gao.gov/ cgi-bin/getrpt?GAO-03-1004]
Washington, D.C.: September 10, 2003.
Describes the Department of Defense's personal financial management
services and education provided to reservists and their families. Finds
that the department is taking steps to improve personal financial
management, but has not assessed the financial well-being of reserve
families, assessed the impact of reservists' financial problems on
mission readiness, or determined how to tailor its programs to
reservists.
Private Pensions: Participants Need Information on Risks They Face in
Managing Pension Assets at and during Retirement.
[Hyperlink, http:/ /www.gao.gov/cgi-bin/getrpt?GAO-03-810]
Washington, D.C.: July 29, 2003.
Describes the information that pension plans make available to
participants at retirement and identifies a range of actions to help
retiring participants preserve their pension and retirement savings
plan assets. Suggests that Congress consider requiring plan sponsors to
provide a notice on risks that individuals face when managing their
income and expenditures at and during retirement.
Electronic Transfers: Use by Federal Payment Recipients Has Increased
but Obstacles to Greater Participation Remain.
[Hyperlink, http:// www.gao.gov/cgi-bin/getrpt?GAO-02-913]
Washington, D.C.: September 12, 2002.
Discusses ways of increasing the use of electronic fund transfers for
benefit payments made through the Social Security Administration and
other programs. Briefly describes efforts by government, industry, and
nonprofit organizations to publicize the use of electronic fund
transfers, often as part of broader financial literacy programs.
Private Pensions: Participants Need Information on the Risks of
Investing in Employer Securities and the Benefits of Diversification.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-943]
Washington, D.C.: September 6, 2002.
Finds that employees can face significant risks when investing in
employer securities through employer-sponsored retirement plans, and
describes the regulatory provisions for disclosures to participants of
such plans. Suggests that Congress consider requiring plan sponsors to
provide an investment education notice containing basic information on
risk management and the importance of diversification.
Retirement Saving: Opportunities to Improve DOL's SAVER Act Campaign.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-634]
Washington, D.C.: June 26, 2001.
Reviews the Department of Labor's Retirement Savings Education
Campaign, which seeks to educate individuals about the importance of
saving for retirement. Finds that the department has not attempted to
assess the extent to which its outreach efforts have increased the
public's knowledge and understanding of retirement saving and makes
recommendations related to such an evaluation.
Consumer Finance: College Students and Credit Cards.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-773]
Washington, D.C.: June 20, 2001.
Describes credit card issuers' practices for marketing to college
students and universities' policies and practices on credit card
solicitation. Discusses the advantages and disadvantages that credit
cards present to college students. Includes description of financial
education efforts by some universities, particularly those responding
to concerns about aggressive credit card solicitations.
Social Security: Capital Markets and Educational Issues Associated
With Individual Accounts.
[Hyperlink, http://www.gao.gov/cgi-bin/ getrpt?GAO/GGD-99-115]
Washington, D.C.: June 28, 1999.
Discusses the public education efforts that would be needed should the
Social Security program be modified to include individual investment
accounts. Finds that a broad-based educational effort would be required
to educate individuals on making appropriate investment decisions and
to protect against misinformation.
[End of section]
(250207):
FOOTNOTES
[1] Pub. L. No. 108-159, Title V, 117 Stat. 2003 (codified at 20 U.S.C.
§§ 9701 - 08).
[2] See 20 U.S.C. § 9706(b). This provision also mandated GAO to assess
the extent of consumers' knowledge and awareness of credit reports,
credit scores, and the dispute resolution process. This issue will be
addressed in a forthcoming GAO report.
[3] The Community Reinvestment Act (CRA) holds banks and savings
institutions accountable for meeting the credit needs of all
communities they are chartered to serve, including low-and moderate-
income communities. Under the legislation, federal banking agencies
periodically evaluate banks to ensure that they are attentive to
community needs. A bank's efforts to improve financial literacy in the
community may be taken into account in assessing CRA performance.
[4] The Jump$tart Coalition for Personal Financial Literacy is a
Washington D.C.-based nonprofit organization whose mission is to
improve the personal financial literacy of young adults. Jump$tart has
more than 140 participants, including government, nonprofit, and
corporate entities.
[5] The Financial Literacy and Education Improvement Act that created
the Commission required it to establish (1) a Web site to serve as a
clearinghouse and provide a coordinated point of entry for information
about federal financial literacy and education programs, grants, and
other information, and (2) a toll-free telephone hotline available to
members of the public seeking information about issues pertaining to
financial literacy and education. See 20 U.S.C. § 9703(b) and (c). The
Web site (www.mymoney.gov) and hotline (1-888-mymoney) were launched on
October 12, 2004.
[6] The Financial Planning Association is a membership organization for
the financial planning community. Its individual members include
financial planners, some of whom hold the Certified Financial Planner®
certification, as well as accountants, attorneys, insurance agents,
money managers, investment consultants, and others involved in
financial planning for consumers.
[7] The National Endowment for Financial Education is currently funding
a project to develop a Web-based evaluation toolkit aimed at helping
financial educators build their evaluation capacity. The project's
purpose is to develop a database of evaluation questions and planned
practice changes for a wide range of financial topics and target
audiences. The project also includes an evaluation manual with
instructions on how to use the database to construct evaluation
instruments and guidelines on how to present and use the evaluation
data to show program impact.
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